Beijing must get the balance right with economic reforms

A most difficult year has just ended for China’s economy. The so-called phase one trade deal between Beijing and Washington may seem like a rare bright spot. It will at least offer a temporary reverse to some heavy tariffs imposed by the United States on Chinese exports. But don’t expect much immediate economic relief for China. Private entrepreneurs will still struggle against slowing economic growth, mounting domestic debt and the nation’s worsening relations with the West, especially the US, a key overseas market for many of them. Important supply chains built up over many years have been disrupted by the trade war. Meanwhile, China’s massive state-owned sector is likely to be the focus of the next round of trade negotiations as well as other structural changes to the mainland economy, such as opening up its financial sector. Such talks will be even more difficult and acrimonious.

It’s been a tough year for China’s entrepreneurs, Jack Ma says

Speaking at a commerce forum in Wuhan, Alibaba founder Jack Ma warned that the phase one trade deal with the US would mark the beginning of “real change” and the Chinese economy faced “huge adjustment”. Alibaba is the parent company of the South China Morning Post. Entrepreneurs, no doubt, need to adapt to sweeping changes ahead. But their lives should not be made more difficult by economic hardliners. Early in the year, some heavyweight ideologues argued that the private sector had accomplished its mission and should leave the stage after 40 years of successful reform and opening-up. Such views are counterproductive.

Thankfully, the leadership in Beijing up to President Xi Jinping has reaffirmed the importance of the private sector and recognised the key role it plays in economic recovery. China cannot afford to ignore or belittle a sector that contributes to more than 60 per cent of gross domestic product, over half of the country’s tax revenues, and more than 80 per cent of urban employment. It is also a major driving force behind China’s technological and business innovation.

To strengthen the economy and keep it competitive, the central government must make sure private companies are treated as fairly as state-owned counterparts when it comes to access to markets and loans from state-run banks. Those sectors monopolised by state-owned companies, including energy, telecoms and utilities, need to be more welcoming to private competitors. Even Americans cannot argue against such changes. There will be many challenges and opportunities as the economy adjusts from being driven by exports to one catering to domestic consumers.

Getting the balance right while reforming the economy will be a tough challenge. On top of that is an increasingly hostile America. Chinese leaders have a lot on their plates in the new year.